Financial Planning for Surgeons

If you're a surgeon in your 40s, you're probably focused on building wealth—not protecting a retirement portfolio.

You're earning a high income, contributing aggressively to retirement accounts, and potentially investing hundreds of thousands of dollars each year.

So should you own TIPS—Treasury Inflation-Protected Securities?

My answer: possibly, but I wouldn't make inflation protection the centerpiece of your portfolio.

You're still in the wealth-building phase

A surgeon in their 40s may have another 15–25 years of earning income before retirement.

That's important.

Your biggest financial asset isn't your investment portfolio. It's your future earning power.

If you're earning $600,000 or $800,000 a year, you have substantial human capital that can continue to fund your lifestyle and investments through periods of inflation and market volatility.

That generally gives you more capacity to accept investment risk than someone who is already retired.

And because you still have decades for your investments to compound, long-term growth is likely to be a major priority.

That's where stocks have an important role.

But inflation still matters

TIPS are designed to protect against inflation.

Their principal adjusts with changes in the Consumer Price Index, and the interest payments are based on that inflation-adjusted principal. If held to maturity, Treasury pays the greater of the inflation-adjusted principal or the original principal.

That can make TIPS useful as a hedge against unexpected inflation.

But there's a distinction between: I want to protect my retirement income from inflation and

I'm 45 and worried about inflation. Those aren't necessarily the same investment problem.

What job do I want TIPS to perform in my portfolio? If the goal is to protect money you'll need in retirement, TIPS may eventually become an increasingly important part of the portfolio. But if you're 42 and your primary objective is accumulating enough wealth to become financially independent, putting too much money into inflation-protected bonds could reduce your exposure to long-term growth.

TIPS become more interesting as retirement approaches

Imagine two surgeons.

Dr. A: Age 42, $2 million portfolio, still earning $700,000.

Dr. B: Age 62, $6 million portfolio, retiring this year.

They might both benefit from inflation protection—but their priorities are completely different.

Dr. A has decades of future income and investment growth ahead.

Dr. B needs the portfolio to start producing income that may have to last 30 years or more.

For Dr. B, protecting purchasing power is much more important.

That's why I generally think of TIPS as becoming more valuable as a surgeon moves from wealth accumulation toward retirement income.

There's another reason to be careful: taxes

TIPS have an unusual tax characteristic.

In a taxable account, the inflation adjustment to the principal can create taxable income even though you don't receive that increase in cash until the security matures. Treasury notes that TIPS interest and inflation adjustments are subject to federal taxation, while Treasury securities are generally exempt from state and local income taxes.

For a surgeon in a high tax bracket, that matters.

It may make the location of TIPS—taxable account versus retirement account—an important part of the decision.

So, should a surgeon in their 40s own TIPS?

Yes, they can—but I wouldn't automatically recommend a large allocation.

For many surgeons in their 40s, the portfolio's primary job is still long-term wealth accumulation.

Stocks can provide the growth engine.

Bonds can provide diversification and stability.

TIPS can provide a specific type of protection: a hedge against unexpected inflation.

As we discussed on QUICK SHOTS VIDEO 1, the key for surgeons to make informed financial decision is order, and the appropriate allocation depends on your overall portfolio, risk tolerance, retirement date, spending needs, and other sources of inflation-adjusted income.

You don't need every investment to do everything.

Your portfolio should have different investments doing different jobs.

Stocks: Grow wealth.

Bonds: Provide stability and income.

TIPS: Help protect purchasing power from inflation.

And as you move closer to retirement, the job description of your portfolio should change.

A 45-year-old surgeon shouldn't necessarily invest like a 65-year-old retiree.

Your portfolio should evolve as your financial life evolves.

This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Asset allocation does not ensure a profit or protect against a loss.

LONGWOOD WEALTH MANAGEMENT and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio as the principal is adjusted semiannually for inflation based on the Consumer Price Index – while providing a real rate of return guaranteed by the U.S. Government. Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio as the principal is adjusted semiannually for inflation based on the Consumer Price Index – while providing a real rate of return guaranteed by the U.S. Government. Treasury Inflation-Protected Securities, or TIPS, are subject to market risk and significant interest rate risk as their longer duration makes them more sensitive to price declines associated with higher interest rates. 

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As a high-income surgeon, you've probably been told:

Max out your 403(b) and 457(b). You'll lower your taxable income and save money on taxes.

And there's a lot of truth to that.

Contributing to traditional retirement accounts can be an excellent way to reduce your taxable income while building wealth for retirement.

But there's a part of the strategy that often gets overlooked:

You didn't eliminate the tax. You deferred it.

And if you accumulate a large balance across your 403(b), 457(b), and other traditional retirement accounts, your future Required Minimum Distributions (RMDs) could create a surprisingly large tax bill.

The problem isn't the contribution. It's the lack of a plan.

Imagine you're a surgeon earning $700,000 today.

You contribute aggressively to your 403(b) and 457(b), potentially sheltering a significant amount of income from current taxation.

You're getting a valuable deduction while you're in a high tax bracket.

Fast-forward 20 or 30 years.

You're retired. Your earned income has disappeared, but you've accumulated several million dollars in traditional retirement accounts.

Eventually, RMDs begin.

Now you're required to take taxable distributions—even if you don't need the money to live.

Add Social Security, pension income, investment income, and distributions from other retirement accounts, and your taxable income can become substantial.

The irony? The tax bracket you worked so hard to avoid during your career may not be the tax bracket you ultimately avoid.

Tax deferral isn't tax elimination

This is the critical distinction.

When you contribute $24,500 to a traditional retirement account, you generally don't pay income tax on that money today.

But eventually, when you withdraw it, the distribution is generally taxed as ordinary income.

So the real question isn't:

How much tax am I saving today?

It's:

What tax rate am I avoiding today, and what rate might I pay when this money comes out?

If you're deducting contributions while in a 35% or 37% marginal federal bracket, that's potentially very valuable.

But if your retirement income later puts you into a similarly high—or even higher—bracket, the strategy may not have been as tax-efficient as you assumed.

Don't put all your retirement eggs in one tax basket

The solution isn't necessarily to stop contributing to your 403(b) or 457(b).

For a high-income surgeon, traditional contributions can still make tremendous sense.

The better strategy may be tax diversification.

Instead of having most of your retirement wealth in traditional accounts, consider building three different tax buckets:

Traditional accounts
You receive a tax benefit today, but withdrawals are generally taxable later.

Roth accounts
You pay taxes today, but qualified withdrawals can generally be tax-free.

Taxable investments
You don't get the same upfront deduction, but you have greater control over when gains and income are recognized.

Having money in all three buckets can give you much more flexibility when you're retired.

The years between retirement and RMDs can be valuable

One of the most important planning opportunities may occur after you retire but before RMDs begin.

Your income could drop dramatically once your surgical income disappears.

Those lower-income years may create an opportunity to strategically convert some traditional retirement assets to Roth.

Yes, you pay taxes on the conversion.

But you may be able to do so at a lower marginal tax rate than the one you faced during your peak earning years—or the rate you might face later when RMDs become large.

This is why retirement tax planning should begin years before retirement, not when your first RMD arrives.

The surgeon's tax question should change

Don't ask only:

“How much can I deduct this year?”

Ask:

“What will my lifetime tax bill look like if I keep doing this for the next 20 years?”

The best retirement strategy isn't necessarily the one that produces the biggest tax deduction today.

It's the one that balances today's tax savings with tomorrow's tax liability.

Your 403(b) and 457(b) may be powerful wealth-building tools.

But for a high-income surgeon, the goal shouldn't simply be to defer as much income as possible.

It should be to control when, how, and at what tax rate that income eventually becomes taxable. The smartest tax strategy isn't always pay less tax today. Sometimes it's pay tax at the right time.

This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.